Daily ShareChat: NZ Oil and Gas

By Jenny Ruth

Monday 26th July 2010

New Zealand Oil & Gas's recent announcements have represented one step forward and two steps backwards, says Forsyth Barr analyst Andrew Harvey-Green.

The company's bad luck with exploration drilling has continued with three wells being dry, costing about three cents a share which Harvey-Green says isn't significant as he had expected a low probability of success.

Production difficulties at the Tui field means production in the year ending June 2011 is likely to be about a million barrels less than previously estimated.
There has been no significant value impact from this as reserves are unaffected and the cost is not material, Harvey-Green says.

On the positive side, the about 10% upgrade in the Kupe field's reserves, adjusting for tax, royalties and additional capital spending, is worth about four cents a share, he says.

Given the failure of the exploration program, the near-term catalyst for the stock is now news on the Kaupokonui and Barque farm outs. Harvey-Green's $1.72 a share valuation includes 22 cents for those two prospects.

Falls in the oil price and the unsuccessful drilling campaign has seen sentiment move against NZO, Harvey-Green says. In our view, the fall in NZO's share price has been overstated.

The company also has good exposure through its 29.4% stake to upside in Pike River Coal, he says.

Recommendation: Buy.

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